Estimating Cash Flows On Capital Budgeting Projects

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Question 1

Free

Multiple Choice

As new capital budgeting projects arise, we must estimate:

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the float costs for financing the project.

when such projects will require cash flows.

the cost of the loan for the specific project.

the cost of the stock being sold for the specific project.

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Question 2

Free

Multiple Choice

Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?

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Incremental cash flows

Cash flow analysis

Pro forma analysis

Substitutionary analysis

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Question 3

Free

Multiple Choice

If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a:

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committed cost.

complementary cost.

obligated cost.

sunk cost.

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Question 4

Free

Multiple Choice

Effects that arise from a new product or service that increase sales of the firm's existing products or services are referred to as:

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complementary effects.

substitutionary effects.

sunk effects.

marginal effects.

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Question 5

Free

Multiple Choice

Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as:

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complementary effects.

substitutionary effects.

sunk effects.

marginal effects.

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Question 6

Multiple Choice

Concerning incremental project cash flow, which of these is a cost one would never count as an expense of the project?

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Initial investment

Taxes paid

Operating expenses of the project

Financing costs

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Question 7

Multiple Choice

Which of these is used as a measure of the total amount of available cash flow from a project?

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Free cash flow

Operating cash flow

Investment in operating capital

Sunk cash flow

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Question 8

Multiple Choice

Which of the following is NOT included when calculating the depreciable basis for real property?

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Freight charges for item

Sales tax paid for item

Financing fees

Installation and testing fees

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Question 9

Multiple Choice

When calculating operating cash flow for a project, one would calculate it as being mathematically equal to which of the following?

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EBIT - Interest -Taxes + Depreciation

EBIT - Taxes

EBIT + Depreciation

EBIT - Taxes + Depreciation

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Question 10

Multiple Choice

Which of these is the concept that a unit's sales will follow an approximate bell-shaped curve versus a steady sales life?

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Bell curve cycle

Coefficient of variation

Product life cycle

NWC life cycle

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Question 11

Multiple Choice

A decrease in net working capital (NWC) is treated as a:

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cash inflow.

cash outflow.

sunk cost.

historical cost.

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Question 12

Multiple Choice

Which of the following is the IRS convention that requires that all property placed in service during a given period is assumed to be placed in service at the midpoint of that period?

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Mid-point convention

Mid-month convention

Mid-quarter convention

Half-year convention

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Question 13

Multiple Choice

Accelerated depreciation allows firms to:

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receive less of the dollars of depreciation earlier in the asset's life.

receive more of the dollars of depreciation earlier in the asset's life.

not pay any taxes during an asset's life.

receive more of the dollars of depreciation later in the asset's life.

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Question 14

Multiple Choice

Section 179 allows a business, with certain restrictions, to do which of the following?

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Offset the tax liability with the cost of the asset in the year of purchase.

Expense the asset immediately in the year of purchase.

Expense the asset using double declining balance depreciation during the life of the asset.

Get a government grant to purchase the asset.

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Question 15

Multiple Choice

For which situation below would one need to "smooth out" the variation in each set of cash flows so that each becomes a perpetuity?

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Choosing between projects with differing risks

Choosing between independent projects

Choosing between alternative assets with differing lives

Choosing between alternative assets with equal lives

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Question 16

Multiple Choice

The best approach to convert an infinite series of asset purchases into a perpetuity is known as the:

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net working capital approach

net present value approach

equivalent annual cost approach

equivalent annual cash flow approach

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Question 17

Multiple Choice

One way to account for flotation costs of raising capital is to:

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adjust all the project's cash flows so that each year it will reflect the flotation costs.

adjust the project's initial cash flow so that it will reflect the flotation costs.

adjust only the project's operating cash flows to account for paying back the shareholders.

adjust the project's tax burden to account for the tax implications of raising capital.

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Question 18

Multiple Choice

With regard to depreciation, the time value of money concept tells us that:

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delaying the depreciation expense is always better.

taking the depreciation expense sooner is always better.

delaying the depreciation expense is sometimes better.

taking the depreciation expense sooner is sometimes better.

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Question 19

Multiple Choice

When looking at which of these types of projects, one must consider any cash flows that arise from surrendering old equipment before the end of its useful life?

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Incremental projects

Replacement projects

Cost-cutting projects

New projects

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Question 20

Multiple Choice

Which of the following measures the operating cash flow a project produces minus the necessary investment in operating capital, and is as valid for proposed new projects as it is for the firm's current operations?

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Free cash flow

Operating cash flow

Investment in operating capital

Sunk cash flow

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